How Safe are Your Brokerage Accounts?
Posted on December 15, 2011
Filed Under Fidelity Investments, Investment Strategy, Mutual Funds, Personal Investing, The Economic SceneHow does $1.2 billion get misplaced at a brokerage firm?
And more importantly, can it happen to your brokerage account?
The $1.2 billion figure is the amount that somehow went missing from MF Global, the once little-known firm helmed by former senator, former NJ governor, former Goldman Sachs chief, Jon Corzine. He says he is as shocked as everyone else at this immensely disturbing turn of events.
Regardless of who knew what when, thousands of MF Global investors are walking on eggshells right now as they await the results of various investigations. If nothing turns up, many of those innocent investors may suffer substantial losses.
The whole episode is immensely troubling – and puzzling. All client accounts at brokerage firms are supposed to be segregated from everything else the firm does. There are supposed to be strict controls to make sure that the wall is never breached; the idea is that while your account will fluctuate with the markets, the money itself should be untouchable. Or so I assumed until I read this article in the NY Times. It turns out that in rare cases it is possible for that wall to be breached.
But getting back to the title question – how safe are your brokerage accounts, and specifically, how safe are your investments in Fidelity mutual funds? As president of a firm that interacts with Fidelity Investments daily, I am sometimes frustrated by their layers of legal requirements. In the long run, however, those procedural hurdles are in the best interests of you, our clients. To put it bluntly – I believe what happened with MF Global could never happen at Fidelity Investments. MF Global was a completely different animal; they focused on high risk trading, while Fidelity does not. Nor, by the way, do the other major firms such as Schwab or Vanguard.
Most importantly, even if every safeguard at Fidelity failed and client money somehow vanished, your account is insured against fraud, up to $500,000, by the Securities and Investor Protection Corporation. And beyond the half-million dollar SIPC limit, Fidelity has insurance on your account with Lloyd’s of London for an additional $1.9 million per account. (MF Global investors have the same SIPC protection on cash and securities, but not on futures contracts.)
You can read about how Fidelity protects your assets here, on the Fidelity web site.
Yes, the markets will gyrate, and so will the value of your account. But I am convinced that your account at Fidelity is held safely behind a rock-solid wall.
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